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The Truth About Credit and Insurance Rates

Money Girl explains the relationship between your credit and what you pay for insurance. Find out which states allow credit to be used in setting rates, which types of policies are affected, and exactly how much having fair or poor credit can cost.

By
Laura Adams, MBA,
August 26, 2015
Episode #415

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The Truth About Credit and Insurance RatesA member of the Dominate Your Debt Facebook group named Melanie asks:

“My husband and I are over 30 years old and have clean driving records. Even though we have every discount possible and high deductibles, I feel that we pay too much for car insurance. But our credit scores are fair—do car insurance companies use your credit score to determine your rates?”

In this episode, I’ll answer Melanie’s question and discuss the relationship between your credit and what you have to pay for different types of insurance.

You’ll learn why insurers care about credit in the first place, how the rules for using credit vary depending on where you live, and exactly how much poor credit can cost.

Free Resource: Laura's Recommended Tools—over 40 of the best ways to earn more, save more, and accomplish more with your money!

The Truth About Credit and Insurance Rates

If you’re a regular Money Girl podcast listener or reader, you already know that credit plays a huge role in your financial life. It affects whether you can get approved for credit accounts—such as mortgages, car loans, and credit cards—and the interest rate you pay for them.

Whenever I write or talk about building and maintaining great credit, some people push back and tell me that having good credit doesn’t matter because you shouldn’t have debt or credit cards in the first place.

For the record, I don’t agree with that point of view. Using credit cards responsibly and taking on debt that you can afford can be extremely wise. 

For instance, buying a home that appreciates in value, getting a car that allows you to go to work, or attending college so you learn valuable skills. These are examples of how leveraging someone else’s money can allow you to build wealth over time.

The important point that well-meaning, anti-credit advocates are missing is that credit affects you in many ways that have absolutely nothing to do with going into debt. Credit also affects:

  • how much you have to pay for insurance 
  • whether you can get approved to rent an apartment or home 
  • whether a potential employer who checks credit history will hire you 
  • whether you can qualify for certain types of government benefits.

When you understand that credit affects much more than your ability to get a credit card, you realize that building and maintaining good credit should be one of your top financial priorities. Otherwise having poor or fair credit will cost you.

See also: 5 Ways to Get a Loan with Bad Credit

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